UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C.  20549







FORM
10-Q







x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934


For
      the quarterly period ended March 31,
2010


OR





 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934


For the
transition period from_________ to __________





Commission
File Number 001-14498





BLUEFLY,
INC.


(Exact
name of registrant as specified in its charter)





Delaware
              
              13-3612110(State or other jurisdiction of
                incorporation or organization)
              
              (I.R.S. Employer Identification Number)42 West 39th Street, New York, NY
                (Address of principal executive offices)
              
              10018
                (Zip Code)





Registrant’s
telephone number, including area code: (212) 944-8000





Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.    Yes x     No
 ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).    Yes  ̈      No
 ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act:





Large
      accelerated filer  ̈
                Accelerated
      filer  ̈
                Non-accelerated
      filer  ̈
                Smaller
      reporting company  x


(Do not
check if a smaller reporting company)


Indicate
by check mark if the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).    Yes o   No
x





As of
April 30, 2010, there were 24,604,892 shares of Common Stock, $.01 par value, of
the registrant outstanding.





BLUEFLY,
INC.


TABLE
OF CONTENTS


MARCH
31, 2010




PAGEPART
      I –
                                          
                                          FINANCIAL
      INFORMATIONItem 1.
                                          
                                          Financial
      Statements:Balance
      Sheets as of March 31, 2010 (unaudited)
                                            and
      December 31, 2009
                                          
                                          3Statements
      of Operations for the three months ended
                                            March
      31, 2010 and 2009 (unaudited)
                                          
                                          4Statements
      of Cash Flows for the three months ended
                                            March
      31, 2010 and 2009 (unaudited)
                                          
                                          5Notes
      to Financial Statements (unaudited)
                                          
                                          6 –
      10Item 2.
                                          
                                          Management’s
      Discussion and Analysis of Financial Condition
                                            and
      Results of Operations
                                          
                                          11
      – 15Item 3.
                                          
                                          Quantitative
      and Qualitative Disclosures About Market Risk
                                          
                                          15Item 4T.
                                          
                                          Controls
      and Procedures
                                          
                                          15PART
      II –
                                          
                                          OTHER
      INFORMATIONItem
      2.
                                          
                                          Unregistered
      Sales of Equity Securities and Use of Proceeds
                                          
                                          17Item 6.
                                          
                                          Exhibits
                                          
                                          17Signatures
                                          
                                          
                                          
                                          18


2


Part
I – FINANCIAL INFORMATION


Item
1. – Financial Statements


BLUEFLY,
INC.


BALANCE
SHEETS





(Unaudited)March
      31,
                                                                      
                                                                      
                                                                      December
      31,2010
                                                                      
                                                                      
                                                                      2009AssetsCurrent
      assets:Cash
      and cash equivalents
                                                                      
                                                                      $
                                                                      14,252,000
                                                                      
                                                                      
                                                                      $
                                                                      10,049,000Accounts
      receivable — net of allowance for doubtful accounts
                                                                      
                                                                      
                                                                      3,845,000
                                                                      
                                                                      
                                                                      
                                                                      3,319,000Inventories,
      net
                                                                      
                                                                      
                                                                      19,973,000
                                                                      
                                                                      
                                                                      
                                                                      17,668,000Prepaid
      inventory
                                                                      
                                                                      
                                                                      1,946,000
                                                                      
                                                                      
                                                                      
                                                                      238,000Prepaid
      expenses
                                                                      
                                                                      
                                                                      780,000
                                                                      
                                                                      
                                                                      
                                                                      208,000Other
      current assets
                                                                      
                                                                      
                                                                      508,000
                                                                      
                                                                      
                                                                      
                                                                      513,000Total
      current assets
                                                                      
                                                                      
                                                                      41,304,000
                                                                      
                                                                      
                                                                      
                                                                      31,995,000Property
      and equipment, net
                                                                      
                                                                      
                                                                      3,255,000
                                                                      
                                                                      
                                                                      
                                                                      3,506,000Other
      assets
                                                                      
                                                                      
                                                                      142,000
                                                                      
                                                                      
                                                                      
                                                                      145,000Total
      assets
                                                                      
                                                                      $
                                                                      44,701,000
                                                                      
                                                                      
                                                                      $
                                                                      35,646,000Liabilities
      and Stockholders’ EquityCurrent
      liabilities:Accounts
      payable
                                                                      
                                                                      $
                                                                      5,150,000
                                                                      
                                                                      
                                                                      $
                                                                      4,363,000Allowance
      for sales returns
                                                                      
                                                                      
                                                                      3,230,000
                                                                      
                                                                      
                                                                      
                                                                      2,627,000Accrued
      expenses and other current liabilities
                                                                      
                                                                      
                                                                      1,794,000
                                                                      
                                                                      
                                                                      
                                                                      2,105,000Deferred
      revenue
                                                                      
                                                                      
                                                                      2,902,000
                                                                      
                                                                      
                                                                      
                                                                      3,516,000Total
      current liabilities
                                                                      
                                                                      
                                                                      13,076,000
                                                                      
                                                                      
                                                                      
                                                                      12,611,000Total
      liabilities
                                                                      
                                                                      
                                                                      13,076,000
                                                                      
                                                                      
                                                                      
                                                                      12,611,000Commitments
      and contingenciesStockholders’
      equity:Common
      stock – $.01 par
      value;  50,000,000 and 200,000,000 shares authorized as of March
      31, 2010 and December 31, 2009, respectively; 24,941,938 and 18,885,239
      shares issued as of March 31, 2010 and December 31, 2009, respectively,
      24,604,844 and 18,552,737 shares outstanding as of March 31, 2010 and
      December 31, 2009, respectively
                                                                      
                                                                      
                                                                      246,000
                                                                      
                                                                      
                                                                      
                                                                      185,000Treasury
      stock
                                                                      
                                                                      
                                                                      (1,820,000
                                                                      )
                                                                      
                                                                      
                                                                      (1,809,000
                                                                      )Additional
      paid-in capital
                                                                      
                                                                      
                                                                      182,168,000
                                                                      
                                                                      
                                                                      
                                                                      172,127,000Accumulated
      deficit
                                                                      
                                                                      
                                                                      (148,969,000
                                                                      )
                                                                      
                                                                      
                                                                      (147,468,000
                                                                      )Total
      stockholders’ equity
                                                                      
                                                                      
                                                                      31,625,000
                                                                      
                                                                      
                                                                      
                                                                      23,035,000Total
      liabilities and stockholders’ equity
                                                                      
                                                                      $
                                                                      44,701,000
                                                                      
                                                                      
                                                                      $
                                                                      35,646,000





The
accompanying notes are an integral part of these financial
statements.


3


BLUEFLY,
INC.


STATEMENTS
OF OPERATIONS


(Unaudited)





Three Months EndedMarch 31,2010
                                                
                                                
                                                2009Net
      sales
                                                
                                                $
                                                20,240,000
                                                
                                                
                                                $
                                                19,902,000Cost
      of sales
                                                
                                                
                                                11,903,000
                                                
                                                
                                                
                                                13,127,000Gross
      profit
                                                
                                                
                                                8,337,000
                                                
                                                
                                                
                                                6,775,000Selling
      and fulfillment expenses
                                                
                                                
                                                4,049,000
                                                
                                                
                                                
                                                4,394,000Marketing
      expenses
                                                
                                                
                                                3,652,000
                                                
                                                
                                                
                                                3,017,000General
      and administrative expenses
                                                
                                                
                                                2,091,000
                                                
                                                
                                                
                                                2,170,000Total
      operating expenses
                                                
                                                
                                                9,792,000
                                                
                                                
                                                
                                                9,581,000Operating
      loss
                                                
                                                
                                                (1,455,000
                                                )
                                                
                                                
                                                (2,806,000
                                                )Interest
      expense to related party stockholders
                                                
                                                
                                                —
                                                
                                                
                                                
                                                (238,000
                                                )Other
      interest expense, net
                                                
                                                
                                                (46,000
                                                )
                                                
                                                
                                                (76,000
                                                )Net
      loss
                                                
                                                $
                                                (1,501,000
                                                )
                                                
                                                $
                                                (3,120,000
                                                )Basic
      and diluted net loss per common share
                                                
                                                $
                                                (0.07
                                                )
                                                
                                                $
                                                (0.23
                                                )Weighted
      average common shares outstanding(basic
      and diluted)
                                                
                                                
                                                20,896,437
                                                
                                                
                                                
                                                13,832,679





The
accompanying notes are an integral part of these financial
statements.


4


BLUEFLY,
INC.


STATEMENTS
OF CASH FLOWS


(Unaudited)




Three Months EndedMarch 31,2010
                            
                            
                            2009Cash
      flows from operating activities:Net
      loss
                            
                            $
                            (1,501,000
                            )
                            
                            $
                            (3,120,000
                            )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                            
                            
                            658,000
                            
                            
                            
                            789,000Stock
      based compensation
                            
                            
                            83,000
                            
                            
                            
                            178,000Provisions
      for returns
                            
                            
                            603,000
                            
                            
                            
                            (634,000
                            )Bad
      debt expense
                            
                            
                            97,000
                            
                            
                            
                            116,000Reserve
      for inventory obsolescence
                            
                            
                            88,000
                            
                            
                            
                            (370,000
                            )Amortization
      of discount on notes payable to related partystockholders
                            
                            
                            —
                            
                            
                            
                            88,000Change
      in fair value of embedded derivative financial liability to related party
      stockholders
                            
                            
                            —
                            
                            
                            
                            48,000Change
      in operating assets and liabilities:(Increase)
      decrease in:Accounts
      receivable
                            
                            
                            (623,000
                            )
                            
                            
                            (218,000
                            )Inventories
                            
                            
                            (2,393,000
                            )
                            
                            
                            2,692,000Prepaid
      inventory
                            
                            
                            (1,708,000
                            )
                            
                            
                            72,000Prepaid
      expenses
                            
                            
                            (572,000
                            )
                            
                            
                            125,000Other
      assets
                            
                            
                            (6,000
                            )
                            
                            
                            41,000Increase
      (decrease) in:Accounts
      payable
                            
                            
                            787,000
                            
                            
                            
                            (2,041,000
                            )Accrued
      expenses and other current liabilities
                            
                            
                            (300,000
                            )
                            
                            
                            (336,000
                            )Deferred
      revenue
                            
                            
                            (614,000
                            )
                            
                            
                            585,000Interest
      payable to related party stockholders
                            
                            
                            —
                            
                            
                            
                            59,000Net
      cash used in operating activities
                            
                            
                            (5,401,000
                            )
                            
                            
                            (1,926,000
                            )Cash
      flows from investing activities:Purchases
      of property and equipment
                            
                            
                            (405,000
                            )
                            
                            
                            (70,000
                            )Net
      cash used in investing activities
                            
                            
                            (405,000
                            )
                            
                            
                            (70,000
                            )Cash
      flows from financing activities:Net
      proceeds from common stock issuance
                            
                            
                            10,020,000
                            
                            
                            
                            —Purchase
      of treasury stock
                            
                            
                            (11,000
                            )
                            
                            
                            (5,000
                            )Net
      cash provided by (used in) financing activities
                            
                            
                            10,009,000
                            
                            
                            
                            (5,000
                            )Net
      increase (decrease) in cash and cash equivalents
                            
                            
                            4,203,000
                            
                            
                            
                            (2,001,000
                            )Cash
      and cash equivalents – beginning of period
                            
                            
                            10,049,000
                            
                            
                            
                            4,004,000Cash
      and cash equivalents – end of period
                            
                            $
                            14,252,000
                            
                            
                            $
                            2,003,000Supplemental
      disclosure of cash flow information:Cash
      paid for interest
                            
                            $
                            60,000
                            
                            
                            $
                            80,000





The
accompanying notes are an integral part of these financial
statements.


5


BLUEFLY,
INC.


NOTES
TO FINANCIAL STATEMENTS


(UNAUDITED)


MARCH
31, 2010





NOTE
1 – BASIS OF PRESENTATION





The
accompanying financial statements include the accounts of Bluefly, Inc. (the
“Company”). The financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnote disclosures required by accounting principles generally accepted in
the United States of America for complete financial statements. In the opinion
of management, all adjustments (consisting mainly of normal recurring accruals)
considered necessary for a fair presentation have been included. The results of
operations of any interim period are not necessarily indicative of the results
of operations to be expected for the fiscal year due to seasonal and other
factors. For further information, refer to the financial statements and
accompanying footnotes included in the Company's Form 10-K for the year ended
December 31, 2009.





The
Company has sustained cumulative net losses and negative cash flows from
operations since inception.  As of March 31, 2010, the Company had an
accumulated deficit of $148,969,000.  The Company’s ability to meet
its obligations in the ordinary course of business is dependent on its ability
to establish profitable operations, or find sources to fund
operations.  The Company believes that its existing cash balance,
combined with working capital and the funds available from the Company’s
existing credit facility, will be sufficient to enable the Company to meet
planned expenditures through at least the next 12 months.




Concentration




For the
three months ended March 31, 2010 and 2009, the Company acquired approximately
34% and 27%, respectively, of its inventory from one supplier.




NOTE
2 – THE COMPANY





The
Company is a leading Internet retailer that sells over 350 brands of designer
apparel, accessories and home products at discounts of up to 75% off of retail
value.  The Company’s e-commerce Web site (“Bluefly.com” or “Web
Site”) was launched in September 1998.




NOTE
3 – FAIR VALUE




The
Company’s financial instruments consist of cash and cash equivalents, other
assets, accounts payable and accrued expenses.  The carrying amounts
of these financial instruments approximate fair value due to their short
maturities.




NOTE
4 – COMMITMENTS AND CONTINGENCIES




Leases




The
Company leases space under operating leases that expire on various dates through
2020. In March 2010, the Company entered into a lease agreement extending the
term of the lease for space it already occupies for an additional ten years
ending on December 31, 2020.  Future minimum lease payments under
these operating leases, excluding utilities, which have initial or remaining
non-cancelable terms in excess of one year, are as follows:


2010
                  
                  $
                  280,0002011
                  
                  
                  386,0002012
                  
                  
                  535,0002013
                  
                  
                  554,0002014
                  
                  
                  573,0002015
      & thereafter
                  
                  
                  3,887,000$
                  6,215,000




Rent
expense (including amounts related to commercial rent tax) aggregated
approximately $160,000 and $192,000 for the three months ended March 31,
2010 and 2009, respectively.


6




BLUEFLY,
INC.


NOTES
TO FINANCIAL STATEMENTS


(UNAUDITED)


MARCH
31, 2010




NOTE
5 – STOCKHOLDERS’ EQUITY





Authorized
Shares




The
Company is incorporated in the State of Delaware.  In February 2010,
the Company amended its certificate of incorporation to decrease the number of
authorized shares of Common Stock, $.01 par value per share (the “Common Stock”)
from 200,000,000 shares to 50,000,000 shares and to decrease the number of
authorized shares of Preferred Stock, $.01 par value per share (the “Preferred
Stock”) from 25,000,000 shares to 1,000,000 shares.




Private
Placement




On
December 21, 2009, the Company entered into a Securities Purchase Agreement (the
“Securities Purchase Agreement”) with Rho Ventures VI, L.P. (“Rho”) pursuant to
which the Company agreed to issue and sell to Rho up to 8,823,529 newly issued
shares (the “Private Placement Shares”) of its Common Stock, for an aggregate
purchase price of $15,000,000, or $1.70 per share, in a private placement
transaction (the “Private Placement”).  The Company issued and sold
2,786,337 of the Private Placement Shares to Rho at an initial closing (the
“Initial Closing”) held on December 21, 2009 for an aggregate purchase price of
approximately $4,737,000.  The Company received proceeds of
approximately $4,468,000, net of $269,000 of issuance costs.




On
February 25, 2010, the Company completed the second closing (the “Second
Closing”) of the Private Placement transaction with Rho.  At the
Second Closing, the Company issued and sold the remaining 6,037,192 Private
Placement Shares of its Common Stock to Rho for an aggregate purchase price of
approximately $10,263,000. The Company received proceeds of approximately
$10,020,000, net of $243,000 of issuance costs for the Private
Placement.




NOTE
6 – SHARE-BASED COMPENSATION





Authoritative
guidance relating to stock-based compensation requires the Company to measure
compensation cost for stock awards at fair value and recognize compensation over
the service period for awards expected to vest. Total share-based compensation
expense recorded in the Statements of Operations was $83,000 and $178,000 for
the three months ended March 31, 2010 and 2009, respectively.




In
addition, concurrently with the Second Closing of the Private Placement, as more
fully described in Note 5 – Stockholders’ Equity, the Company amended its
Amended and Restated 2005 Stock Incentive Plan (the “Plan”) to increase the
aggregate number of shares of Common Stock that may be the subject of
stock-based awards granted pursuant to the Plan by 1,500,000
shares.




Stock
Options




The fair
value of options granted is estimated on the date of grant using a Black-Scholes
option pricing model. Expected volatilities are calculated based on the
historical volatility of the price of the Company's Common Stock. Management
monitors share option exercise and employee termination patterns to estimate
forfeiture rates within the valuation model. The expected holding period of
options represents the period of time that options granted are expected to be
outstanding. The risk-free interest rate for periods within the expected life of
the option is based on the interest rate of U.S. Treasury notes in effect on the
date of the grant.





The
following table summarizes the Company’s stock option activity:


Number of
                  
                  
                  Weighted AverageShares
                  
                  
                  Exercise PriceBalance
      at December 31, 2009
                  
                  
                  207,760
                  
                  
                  $
                  9.09Options
      granted
                  
                  
                  1,765,000
                  
                  
                  $
                  2.40Options
      cancelled
                  
                  
                  (3,708
                  )
                  
                  $
                  8.80Options
      exercised
                  
                  
                  —
                  
                  
                  $
                  —Balance
      at March 31, 2010
                  
                  
                  1,969,052
                  
                  
                  $
                  3.09Vested
      at December 31, 2009
                  
                  
                  180,787
                  
                  
                  $
                  9.94Vested
      at March 31, 2010
                  
                  
                  176,310
                  
                  
                  $
                  9.74


7




BLUEFLY,
INC.


NOTES
TO FINANCIAL STATEMENTS


(UNAUDITED)


MARCH
31, 2010





During
the first quarter of 2010, 3,708 options were cancelled through normal employee
attrition, of which 3,000 options were vested and 708 options were non-vested.
During the first quarter of 2010, 4,023 options vested.  The total
fair value of the options that vested during the first quarter of 2010 was
approximately $11,000.  There were 1,765,000 options
granted during the first quarter of 2010. At March 31, 2010, the aggregate
intrinsic value of the fully vested options was $3,000 and the weighted average
remaining contractual life of the options was approximately 5 years. The Company
did not capitalize any compensation cost, or modify any of its stock option
grants during the three months ended March 31, 2010. During the first quarter of
2010, no options were exercised and no cash was used to settle equity
instruments granted under the Company’s equity incentive plans.




As of
March 31, 2010, the total compensation cost related to non-vested stock option
awards not yet recognized was $2,264,000. Total compensation cost is expected to
be recognized over four years on a weighted average basis.




Restricted
Stock Awards and Deferred Stock Unit Awards




The
following table is a summary of activity related to restricted stock awards and
deferred stock unit awards for employees at March 31, 2010:


Restricted
                
                
                Deferred StockStock Awards
                
                
                Unit AwardsBalance
      at December 31, 2009
                
                
                8,437
                
                
                
                12,314Shares/Units
      granted
                
                
                8,062
                
                
                
                —Shares/Units
      forfeited
                
                
                (750
                )
                
                
                (51
                )Shares/Units
      restriction lapses
                
                
                (6,562
                )
                
                
                (12,263
                )Balance
      at March 31, 2010
                
                
                9,187
                
                
                
                —Weighted
      average grant date fair value per share
                
                $
                2.24
                
                
                $
                —Aggregate
      grant date fair value
                
                $
                25,000
                
                
                $
                —Weighted
      average vesting service period of shares granted
                
                12
      Months
                
                
                12-36
      MonthsNumber
      of shares/units vested at March 31, 2010
                
                
                —
                
                
                
                —Number
      of shares/units Non-vested at March 31, 2010
                
                
                9,187
                
                
                
                —





As of
March 31, 2010, the total compensation cost related to non-vested restricted
stock not yet recognized was $15,000.  Total compensation cost is
expected to be recognized within a one year period on a weighted average
basis.




NOTE
7 – SUBORDINATED CONVERTIBLE NOTES




In July
2008, the Company issued Subordinated Notes in the aggregate principal amount of
$3,000,000 that had a term expiring three years from the date of issuance and
bore interest at the rate of 8% per annum, compounded annually, which was
payable in cash upon maturity or conversion (the “Subordinated
Notes”).  In December 2009, all outstanding Subordinated Notes were
converted into shares of Common Stock at a conversion price of $1.70 per
share.




In
connection with the adoption of authoritative guidance relating to determining
whether an instrument (or embedded feature) is indexed to an entity’s own stock,
on January 1, 2009, the Company determined that the embedded conversion feature
in the Subordinated Notes were not indexed to the Company’s own stock and,
therefore, were an embedded derivative financial liability (the “Embedded
Derivative”), which requires bifurcation and must be separately accounted for as
a separate instrument.


8




BLUEFLY,
INC.


NOTES
TO FINANCIAL STATEMENTS


(UNAUDITED)


MARCH
31, 2010




The
Company measured the fair value of the Embedded Derivative using a Black-Scholes
valuation model as of January 1, 2009 to determine the cumulative effect of the
change in accounting principle to be recorded. The Company recorded a cumulative
effect of the change in accounting principle of approximately $779,000, which
was recognized as a decrease in accumulated deficit at January 1,
2009.  The amount recognized in the Company’s Balance Sheet upon the
initial adoption of the authoritative guidance described above was determined
based on the amounts that would have been recognized if the authoritative
guidance had been applied from the issuance date of the Subordinated Notes and
the amount recognized in the Company’s Balance Sheet upon the initial
application of the authoritative guidance.  In addition, as a result
of the bifurcation, the Company recognized an Embedded Derivative of
approximately $98,000 and a discount on the Subordinated Notes of $877,000,
which reduced the carrying value of the Subordinated Notes at the date of
adoption.  This discount represented additional non-cash interest
expense that was to be amortized over the remaining life of the Subordinated
Notes.




The
Company also re-measured the fair value of the Embedded Derivative at March 31,
2009.  Any change in fair value was recorded as part of interest
expense to related party stockholders.  The assumptions used at March
31, 2009 were as follows:




(Unaudited)March 31, 2009Risk-free
      interest rate
                
                
                0.81
                %Expected
      life (in years)
                
                
                2.31Dividend
      yield
                
                
                0.00
                %Expected
      volatility
                
                
                87.95
                %




Expected
volatility was based on the historical volatility of the price of the Company’s
Common Stock, measured over the same period of time as the remaining maturity
life of the Subordinated Notes.  The risk free interest rate was based
on the interest rate for U.S. Treasury Notes having a maturity period equal to
the then remaining maturity life of the Subordinated Notes.




For the
three months ended March 31, 2009, the Company recognized interest expense in
connection with its Subordinated Notes, including changes in fair value of the
Embedded Derivative, which were included in total interest expense to related
party stockholders in the Statement of Operations, as follows:


(Unaudited)Three Months EndedMarch 31, 2009Amortization
      of discount on notes payable to related party stockholders
                
                $
                88,000Interest
      expense to related party stockholders
                
                
                59,000Appreciation
      in fair value of embedded derivative financial liability to related partystockholders
                
                
                48,000Amortization
      expense of warrants issued to related party stockholders
                
                
                43,000Total
      interest expense to related party stockholders
                
                $
                238,000




NOTE
8 – NET LOSS PER SHARE




Basic net
loss per share excludes dilution and is computed by dividing net loss available
to common stockholders by the weighted average number of common shares
outstanding for the period.




Diluted
net loss per share is computed by dividing net loss available to common
stockholders by the weighted average number of common shares outstanding for the
period, adjusted to reflect potentially dilutive securities using the treasury
stock method for options, warrants, restricted stock awards and deferred stock
unit awards, and the if-converted method for preferred stock and the
subordinated notes.  Due to the Company’s net loss, (i) options and
warrants to purchase shares of Common Stock, (ii) preferred stock and
Subordinated Notes convertible into shares of Common Stock, (iii) restricted
stock awards that have not yet vested and (iv) deferred stock unit awards for
shares that have not yet been delivered were not included in the computation of
diluted loss per share, as the effects would be anti-dilutive. Accordingly,
basic and diluted weighted average shares outstanding are equal for the
following periods presented:


9


BLUEFLY,
INC.
 NOTES
TO FINANCIAL STATEMENTS
 (UNAUDITED)
 MARCH
31, 2010


Three Months EndedMarch 31,2010
                
                2009Net
      loss
                
                $
                (1,501,000
                )
                
                $
                (3,120,000
                )Weighted
      average common shares outstanding (basic)
                
                
                20,896,437
                
                
                
                13,832,679Options
      and warrants(1)(2)
                
                
                —
                
                
                
                —Preferred
      stock and subordinated notes(1)
                
                
                —
                
                
                
                —Restricted
      stock and deferred stock awards(1)
                
                
                —
                
                
                
                —Weighted
      average common shares outstanding (diluted)
                
                
                20,896,437
                
                
                
                13,832,679




(1)
              For
      the three months ended March 31, 2010 and 2009, the Company had weighted
      average shares of the following potentially dilutive securities that were
      excluded:
  Options
      and warrants
                        
                        
                        168,336
                        
                        
                        
                        —Preferred
      stock and subordinated notes
                        
                        
                        —
                        
                        
                        
                        821,918Restricted
      stock and deferred stock awards
                        
                        
                        19,836
                        
                        
                        
                        541,545
 
 (2)
              Under
      the treasury-stock method, the Company excluded all options and warrants
      from the computation of weighted average shares outstanding as a result of
      the exercise price of the options and warrants being greater than the
      average market price of the Company’s Common
  Stock.




NOTE
9 – RECENT ACCOUNTING PRONOUNCEMENTS




In
February 2010, the Financial Accounting Standards Board (“FASB”) issued an
update to authoritative guidance relating to subsequent events, which was
effective upon the issuance of the update.  The Company adopted this
authoritative guidance on February 28, 2010.  The update to the
authoritative guidance relating to subsequent events removes the requirement for
Securities and Exchange Commission filers to disclose the date through which
subsequent events have been evaluated in both issued and revised financial
statements.  The adoption of this update to the authoritative guidance
relating to subsequent events did not impact the Company’s financial position or
operating results other than removing the disclosure.


10


Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations





Overview





Bluefly,
Inc. is a leading Internet retailer that sells over 350 brands of designer
apparel, accessories and home furnishingsat discounts of up to 75%
off of retail value.  We launched our Web site in September
1998.





Our net
sales increased by approximately 2% to $20,240,000 for the three months ended
March 31, 2010 from $19,902,000 for the three months ended March 31,
2009.  Our gross margin percentage increased to 41.2% for the three
months ended March 31, 2010 from 34.0% for the three months ended March 31,
2009. Our gross profit increased by approximately 23% to $8,337,000 for the
three months ended March 31, 2010 from $6,775,000 for the three months ended
March 31, 2009. The increase in both our gross margin and gross profit was
primarily attributable to an increase in our product margins due to improved
initial margins across all categories.  We incurred an operating loss
of $1,455,000 for the three months ended March 31, 2010 as compared to an
operating loss of $2,806,000 for the three months ended March 31,
2009.  The improvement in operating loss was primarily a result of the
increase in gross margin percentage, a decrease in variable operating
fulfillment expenses and a reduction in our selling and fulfillment expenses
offset by an increase in marketing expenses.





Marketing
expenses (excluding staff related costs) increased to $3,276,000 for the three
months ended March 31, 2010 from $2,818,000 for the three months ended March 31,
2009.  Marketing expenses (excluding staff related costs) increased
primarily as a result of increased expenses in our offline/online integrated
marketing campaign of approximately $160,000.  Marketing expenses
(including staff related costs) as a percentage of net sales increased to 18.0%
for the three months ended March 31, 2010 compared to 15.2% for the three months
ended March 31, 2009. General and administrative expenses decreased to
$2,091,000 from $2,170,000 for the first quarter of 2009.





Our
reserve for returns and credit card chargebacks increased to 39.1% of gross
sales for the first quarter of 2010 compared to 38.3% for the first quarter of
2009.  The increase was primarily caused by a shift in our merchandise
mix towards higher end products.  However, we believe that this
increase in return rates has been more than offset by higher gross margin
dollars and average order sizes that have been generated by this shift in
merchandise mix.





At March
31, 2010, we had an accumulated deficit of $148,969,000. The cumulative net
losses and accumulated deficit resulted primarily from the costs associated with
developing and marketing our Web site and building our infrastructure, as well
as non-cash beneficial conversion charges resulting from decreases in the
conversion price of our preferred stock and the payment of dividends to holders
of our preferred stock.




Results
Of Operations




For
The Three Months Ended March 31, 2010 Compared To The Three Months Ended March
31, 2009.




The
following table sets forth our Statements of Operations data for the three
months ended March 31st. All
data is in thousands except as indicated below:





2010
                          
                          
                          2009As a % of
                          
                          
                          
                          
                          
                          As a % ofNet Sales
                          
                          
                          
                          
                          
                          Net SalesNet
      sales
                          
                          $
                          20,240
                          
                          
                          
                          100.0
                          %
                          
                          $
                          19,902
                          
                          
                          
                          100.0
                          %Cost
      of sales
                          
                          
                          11,903
                          
                          
                          
                          58.8
                          
                          
                          
                          13,127
                          
                          
                          
                          66.0Gross
      profit
                          
                          
                          8,337
                          
                          
                          
                          41.2
                          
                          
                          
                          6,775
                          
                          
                          
                          34.0Selling
      and fulfillment expenses
                          
                          
                          4,049
                          
                          
                          
                          20.0
                          
                          
                          
                          4,394
                          
                          
                          
                          22.0Marketing
      expenses
                          
                          
                          3,652
                          
                          
                          
                          18.0
                          
                          
                          
                          3,017
                          
                          
                          
                          15.2General
      and administrative expenses
                          
                          
                          2,091
                          
                          
                          
                          10.4
                          
                          
                          
                          2,170
                          
                          
                          
                          10.9Total
      operating expenses
                          
                          
                          9,792
                          
                          
                          
                          48.4
                          
                          
                          
                          9,581
                          
                          
                          
                          48.1Operating
      loss
                          
                          
                          (1,455
                          )
                          
                          
                          (7.2
                          )
                          
                          
                          (2,806
                          )
                          
                          
                          (14.1
                          )Interest
      expense, net
                          
                          
                          (46
                          )
                          
                          
                          (0.2
                          )
                          
                          
                          (314
                          )
                          
                          
                          (1.6
                          )Net
      loss
                          
                          $
                          (1,501
                          )
                          
                          
                          (7.4
                          )%
                          
                          $
                          (3,120
                          )
                          
                          
                          (15.7
                          )%




11




We also
measure and evaluate ourselves against certain other key operational metrics.
The following table sets forth our actual results based on these other metrics
for the three months ended March 31st, as
indicated below:




2010
                    
                    
                    2009Average
      order size (including shipping & handling)
                    
                    $
                    279.94
                    
                    
                    $
                    249.99New
      customers added during the period*
                    
                    
                    42,532
                    
                    
                    
                    46,605


*Based on
unique email addresses




In
addition to the financial statement items and metrics listed above, which are
non-GAAP financial measurements, we also report gross sales, another non-GAAP
financial measure.  We define gross sales as the total dollar amount
of orders received by customers (including shipping and handling) net of
customer credits, but before any reserves are taken for returns or bad
debt.  We believe that the presentation of gross sales is useful to
investors because (a) it provides an alternative measure of the total demand for
the products sold by us and (b) it provides a basis upon which to measure the
percentage of total demand that is reserved for both returns and bad
debt.  Management uses the gross sales measure for these same
reasons.





Net sales:Gross sales for the
three months ended March 31, 2010 increased by approximately 3% to $33,235,000
from $32,272,000 for the three months ended March 31, 2009. For the three months
ended March 31, 2010, we recorded a provision for returns and credit card
chargebacks and other discounts of $12,995,000 or approximately 39.1% of gross
sales. For the three months ended March 31, 2009, the provision for returns and
credit card chargebacks and other discounts was $12,370,000, or approximately
38.3% of gross sales. The increase in this provision as a percentage of gross
sales resulted from a shift in our merchandise mix towards higher end
products.  However, we believe that this increase in return rates has
been more than offset by higher gross margin dollars and average order sizes
that have been generated by this shift in merchandise mix.





After the
necessary provisions for returns, credit card chargebacks and adjustments for
sales taxes, our net sales for the three months ended March 31, 2010 was
$20,240,000. This represents an increase of approximately 2% compared to the
three months ended March 31, 2009, in which net sales totaled $19,902,000. The
increase in net sales resulted primarily from a 12% increase in average order
size. For the three months ended March 31, 2010, revenue from shipping and
handling (which is included in net sales) decreased approximately 11% to
$1,058,000 from $1,192,000 for the three months ended March 31, 2009.Shipping and handling
revenue decreased primarily as a result of a decrease in customer orders and
higher average order sizes.





Cost of sales:  Cost
of sales consists of the cost of product sold to customers, in-bound and
out-bound shipping costs, inventory reserves, commissions and packing materials.
Cost of sales for the three months ended March 31, 2010 was $11,903,000
resulting in a gross margin percentage of approximately 41.2%. Cost of sales for
the three months ended March 31, 2009 was $13,127,000, resulting in a gross
margin percentage of 34.0%. Gross profit increased by approximately 23% to
$8,337,000 for the three months ended March 31, 2010 compared to $6,775,000 for
the three months ended March 31, 2009. The increase in gross margin and gross
profit is attributable to an increase in product margins due to improved initial
margins across all categories.





Selling and fulfillment
expenses:  Selling and fulfillment expenses decreased by
approximately 8% for the three months ended March 31, 2010 compared to the three
months ended March 31, 2009. Selling and fulfillment expenses were comprised of
the following:





Three Months Ended March,
                          
                          
                          Percentage(All data in thousands)
                          
                          2010
                          
                          
                          2009
                          
                          
                          DifferenceAs a % of
                          
                          
                          
                          
                          
                          As a % of
                          
                          
                          IncreaseNet Sales
                          
                          
                          
                          
                          
                          Net Sales
                          
                          
                          (Decrease)Operating
                          
                          $
                          1,904
                          
                          
                          
                          9.4
                          %
                          
                          $
                          2,088
                          
                          
                          
                          10.5
                          %
                          
                          
                          (8.8
                          )%Technology
                          
                          
                          1,301
                          
                          
                          
                          6.4
                          
                          
                          
                          1,498
                          
                          
                          
                          7.5
                          
                          
                          
                          (13.2
                          )E-Commerce
                          
                          
                          844
                          
                          
                          
                          4.2
                          
                          
                          
                          808
                          
                          
                          
                          4.0
                          
                          
                          
                          4.5Total
      selling and fulfillment expenses
                          
                          $
                          4,049
                          
                          
                          
                          20.0
                          %
                          
                          $
                          4,394
                          
                          
                          
                          22.0
                          %
                          
                          
                          (7.9
                          )%


12


As a
percentage of net sales, our selling and fulfillment expenses decreased to 20.0%
for the three months ended March 31, 2010 from 22.0% for the three months ended
March 31, 2009.





Operating
expenses include all costs related to inventory management, fulfillment,
customer service, and credit card processing. Operating expenses decreased for
the three months ended March 31, 2010 by 8.8% compared to the three months ended
March 31, 2009 primarily as a result of decreased variable costs associated with
fulfillment costs (e.g., picking and packing orders and processing returns) and
a decrease in fees associated with our customer service call
center.





Technology
expenses consist primarily of staff related costs, amortization of capitalized
costs and Web site hosting. For the three months ended March 31, 2010,
technology expenses decreased by 13.2% compared to the three months ended March
31, 2009. This decrease was attributable to a decrease in depreciation expense
of $117,000, a decrease in salary and salary related expenses of approximately
$73,000 and a decrease in consulting expenses of $41,000, which was offset by an
increase in software support expenses of approximately $59,000.





E-Commerceexpenses include expenses
related to our photo design studio, image processing, and Web site design. For
the three months ended March 31, 2010, e-commerce expenses increased by
approximately 4.5% as compared to the three months ended March 31, 2010
primarily as a result of an increase in expenses associated with photo shoots of
approximately $40,000.





Marketing
expenses:Marketing expenses increased by 21% to $3,652,000
for the three months ended March 31, 2010 from $3,017,000 for the three months
ended March 31, 2009.





Marketing
expenses include expenses related to our offline/online integrated marketing
campaign, paid search, email campaigns, comparison engines, fees to affiliates,
and direct mail campaigns as well as staff related costs. As a percentage of net
sales, our marketing expenses increased to 18.0% for the three months ended
March 31, 2010 from 15.2% for the three months ended March 31,
2009.





The
increase in total marketing expenses was attributable to increases in both
online and offline marketing programs of approximately $251,000 and $222,000,
respectively, including an increase in expenses related to our offline/online
integrated marketing campaign of approximately $160,000.





General and administrative
expenses:
General and administrative expenses include merchandising, finance and
administrative salaries and related expenses, insurance costs, accounting and
legal fees, depreciation and other office related expenses.  General
and administrative expenses for the three months ended March 31, 2010 decreased
by approximately 4% to $2,091,000 as compared to $2,170,000 for the three months
ended March 31, 2009.  The decrease in general and administrative
expenses was primarily the result of a decrease in rent and maintenance expenses
of $81,000, a decrease in stock-based compensation expense related to equity
awards of $72,000, a decrease in professional fees of $63,000, which were all
offset by increases in franchise fees of $63,000 and salary and salary related
expenses of $62,000.





As a
percentage of net sales, general and administrative expenses for the three
months ended March 31, 2010 decreased to 10.4% from 10.9% for the three months
ended March 31, 2009.





Loss from
operations:  For the three months ended March 31, 2010, we
incurred an operating loss of $1,455,000 compared to an operating loss of
$2,806,000 for the three months ended March 31, 2009.





Interest income:Interest
income for the three months ended March 31, 2010 increased to $11,000 from
$5,000 for the three months ended March 31, 2009. These amounts related
primarily to interest income earned on our cash balances.





Interest expense to related party
stockholders:Interest
expense to related party stockholders for the three months ended March 31, 2010
decreased to $0 as compared to $238,000 for the three months ended March 31,
2009. Interest expense to related party stockholders consisted of amortization
expense from warrants issued to certain related parties, accrued interest
expense due upon maturity, non-cash changes in fair value of the embedded
derivative and non-cash amortization of the discount relating to our outstanding
subordinated convertible notes issued to certain related
parties.  There was no interest expense to related party stockholders
for the three months ended March 31, 2010 because the notes were converted to
common stock in connection with the private placement transaction in late
2009.


13




Interest expense:Interest
expense for the three months ended March 31, 2010 was approximately $57,000
compared to $81,000 for the three months ended March 31, 2009. Interest expense
consists primarily of fees paid in connection with our credit
facility.




Liquidity
And Capital Resources




General




At March
31, 2010, we had approximately $14.3 million in cash and cash equivalents
compared to $10.0 million and $2.0 million at December 31, 2009 and March 31,
2009, respectively. Working capital at March 31, 2010 and 2009 was $28.2 million
and $13.2 million, respectively.  Working capital at December 31, 2009
was $19.4 million.  As of March 31, 2010, we had an accumulated
deficit of approximately $149.0 million.  We have incurred negative
cash flows and cumulative net losses since inception.





During
the first quarter of 2010, we completed the Second Closing of the Private
Placement financing with Rho in which we received approximately $10,020,000, net
of $243,000 of issuance costs.





We
believe that our existing cash balance, combined with working capital and the
funds available from our credit facility will be sufficient to enable us to meet
planned expenditures through at least the next 12 months.  There can
be no assurance that we will achieve or sustain positive cash flows from
operations or profitability.




Credit
Facility




We have a
credit facility with Wells Fargo Retail Finance LLC (“Wells
Fargo”).  Pursuant to the terms of the credit facility, Wells Fargo
provides us with a revolving loan and issues letters of credit in favor of
suppliers or factors.  The credit facility is secured by a lien on
substantially all of our assets. Availability under the credit facility is
determined by a formula that takes into account a certain percentage of our
inventory and a certain percentage of our accounts receivable. The maximum
availability is currently $7,500,000, but can be increased to $12,500,000 at our
request, subject to certain conditions.  As of March 31, 2010, total
availability under the credit facility was approximately $4.8 million of which
$2.9 million was committed for letters of credit in favor of suppliers, leaving
approximately $1.9 million available for further borrowings. The terms of the
credit facility contain a material adverse condition clause.  In the
event of a material adverse change in our financial condition, we would not be
able to obtain additional borrowings under the credit facility and existing
borrowings would become due and payable.




Interest
accrues monthly on the average daily amount outstanding under the credit
facility during the preceding month at a per annum rate equal to the prime rate
plus 0.75% or LIBOR plus 3.25%. We also pay a monthly commitment fee on the
unused portion of the credit facility (i.e., $7,500,000 less the amount of loans
outstanding) equal to 0.75% and a servicing fee of $3,333 per
month.  We also pay Wells Fargo certain fees to open letters of credit
and guarantees in an amount equal to a certain specified percentage of the face
amount of the letter of credit for each thirty (30) days of such letter of
credit, or a portion thereof, remains open.




Both
availability under our credit facility and our operating cash flows are affected
by the payment terms that we receive from suppliers and service providers, and
the extent to which suppliers require us to provide credit support under our
credit facility.  In some instances, new vendors may require
prepayments. We may make prepayments in order to open up these new
relationships, or to gain access to inventory that would not otherwise be
available to us. In addition, from time to time we make prepayments in
connection with our advertising campaign, as in some circumstances we need to
pay in advance of media placements. As of March 31, 2010, we had approximately
$1,946,000 of prepaid inventory and approximately $542,000 of prepaid
marketing on our Balance Sheet compared to $238,000 and $12,000, respectively,
as of December 31, 2009 and $83,000 and $131,000, respectively, as of March 31,
2009.


14




Commitments
and Long-Term Obligations




As of
March 31, 2010, we had the following commitments and long-term
obligations:





Less Than
                  
                  
                  
                  
                  
                  
                  
                  
                  More ThanTotal
                  
                  
                  1Year
                  
                  
                  1-3Years
                  
                  
                  3-5Years
                  
                  
                  5YearsMarketing
      and advertising
                  
                  $
                  1,251,000
                  
                  
                  $
                  1,251,000
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —Operating
      leases
                  
                  
                  6,215,000
                  
                  
                  
                  407,000
                  
                  
                  
                  930,000
                  
                  
                  
                  1,137,000
                  
                  
                  
                  3,741,000Employment
      contracts
                  
                  
                  4,849,000
                  
                  
                  
                  1,369,000
                  
                  
                  
                  3,480,000
                  
                  
                  
                  —
                  
                  
                  
                  —Total
      commitments and long-term obligations
                  
                  $
                  12,315,000
                  
                  
                  $
                  3,027,000
                  
                  
                  $
                  4,410,000
                  
                  
                  $
                  1,137,000
                  
                  
                  $
                  3,741,000




We
believe that in order to grow the business, we will need to make additional
marketing and advertising commitments in the future.  However, our
marketing budget is subject to a number of factors, including our results of
operations.




Item
3. Quantitative and Qualitative Disclosures About Market Risk




We have
assessed our vulnerability to certain market risks, including interest rate risk
associated with financial instruments included in cash and cash equivalents. Due
to the short-term nature of these instruments, we have determined that the risks
associated with interest rate fluctuations related to these financial
instruments do not pose a material risk to us.




Item
4T.  Controls and Procedures.




As of the
end of the period covered by this Form 10-K (the “Evaluation Date”), we carried
out an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based
upon that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that, as of the Evaluation Date, our disclosure controls and
procedures were effective in ensuring that information required to be disclosed
by us in the reports that we file or submit under the Exchange Act were
recorded, processed, summarized and reported, within the time periods specified
in the SEC’s rules and forms, and were effective to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act was accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, to allow timely decisions
regarding required disclosure.  There have been no changes in our
internal control over financial reporting that occurred during the Company's
most recent fiscal quarter that have materially affected, or are reasonably
likely to materially affect, the Company's internal control over financial
reporting.




15


Special
Note Regarding Forward Looking Statements





This
report may include statements that constitute "forward-looking" statements,
usually containing the words "believe", "project", "expect", or similar
expressions. These statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
inherently involve risks and uncertainties that could cause actual results to
differ materially from the forward-looking statements. The risks and
uncertainties are detailed from time to time in reports filed by us with the
Securities and Exchange Commission, including Forms 8-K, 10-Q and 10-K. These
risks and uncertainties include, but are not limited to, the
following:  our history of losses and anticipated future losses; risks
associated with the economic downturn; risks associated with affiliates of Rho
Ventures, LP, affiliates of Soros Fund Management, private funds associated with
Maverick Capital Ltd. and affiliates of Prentice Capital Management, LP each
owning a significant portion of our stock; the potential failure to forecast
revenues and/or to make adjustments to our operating plans necessary as a result
of any failure to forecast accurately; unexpected changes in fashion trends;
cyclical variations in the apparel and e-commerce markets; the risk of default
by us under our credit facility and the consequences that might arise from
us having granted a lien on substantially all of our assets under that
agreement; risks of litigation related to the sale of unauthentic or damaged
goods and litigation risks related to sales in foreign countries; the dependence
on third parties and certain relationships for certain services, including our
dependence on UPS and USPS (and the risks of a mail slowdown due to
terrorist activity) and our dependence on our third-party web hosting,
fulfillment and customer service centers; online commerce security risks; the
success of our advertising campaign; our ability to raise additional capital, if
needed, to support the growth of our business; risks related to brand owners’
efforts to limit our ability to purchase products indirectly; management of
potential growth; the competitive nature of our business and the potential for
competitors with greater resources to enter the business; the availability of
merchandise; the need to further establish brand name recognition; risks
associated with our ability to handle increased traffic and/or continued
improvements to our Web site; rising return rates; dependence upon executive
personnel who do not have long-term employment agreements; the successful hiring
and retaining of new personnel; risks associated with expanding our operations;
risks associated with potential infringement of other’s intellectual property;
the potential inability to protect our intellectual property; government
regulation and legal uncertainties; and uncertainties relating to the imposition
of sales tax on Internet sales.


16


Part
II  - OTHER INFORMATION





Item
2.   Unregistered Sales of Equity Securities and Use of
Proceeds





Issuer
Purchases of Equity Securities





The
following table shows purchases of our own equity securities, which we completed
during the first quarter of 2010:





Period
                  
                  Total Number
                    of Shares
                    Purchased
                  
                  
                  Average
                    Price
                    Paid
                    per Share
                  
                  Total Number of
                    Shares Purchased
                    as
                    Part of Publicly
                    Announced
      Programs
                  
                  Maximum Dollar
                    Value that May Yet
                    be Purchased Under
                    the Programs(1)January 1,
      2010 – January 31, 2010
                  
                  
                  —
                  
                  
                  $
                  —
                  
                  N/A
                  
                  
                  N/AFebruary 1,
      2010 – February 28, 2010
                  
                  
                  4,592
                  
                  
                  $
                  2.48
                  
                  N/A
                  
                  
                  N/AMarch 1,
      2010 – March 31, 2010
                  
                  
                  —
                  
                  
                  $
                  —
                  
                  N/A
                  
                  
                  N/ATotal
      – Three months ended March 31, 2010
                  
                  
                  4,592
                  
                  
                  $
                  2.48
                  
                  N/A
                  
                  
                  N/A




(1)
            These
      shares were withheld by the Company to satisfy the tax withholding
      obligations of certain officers and employees of the Company in connection
      with the distribution of common stock in respect of deferred stock units
      held by such officers and
employees.




Item
6.   Exhibits





The
following is a list of exhibits filed as part of this Report:





Exhibit Number
                      
                      Description10.1
                      
                      Lease
      Agreement by and between the Company and 42-52 West 39 Street LLC, dated
      March 17, 2010 (incorporated by reference to the Current Report on Form
      8-K filed by the Company with the Securities and Exchange Commission on
      March 22, 2010).31.1
                      
                      Certification
      Pursuant to Rule 13a-14(a)/15d-14(a).31.2
                      
                      Certification
      Pursuant to Rule 13a-14(a)/15d-14(a).32.1
                      
                      Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.32.2
                      
                      Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of
2002.





17


SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.





BLUEFLY,
      INC.By:
                      /s/ Melissa
Payner-GregorMelissa
      Payner-GregorChief
      Executive OfficerBy:
                      /s/ Kara B. JennyKara
      B. JennyChief
      Financial
Officer





May 4,
2010


18